Feb. 5 (Bloomberg) -- Britain’s economy will grow more
slowly this year than previously forecast and stagnation may
persist, according to the National Institute of Economic and
Social Research.

The institute sees the economy expanding 0.7 percent this
year instead of the 1.1 percent forecast in November, and 1.5
percent in 2014, it said in a report published in London today.
It also said Chancellor of the Exchequer George Osborne should
relax his fiscal squeeze to help the recovery.

The economy shrank 0.3 percent in the fourth quarter and is
facing the threat of a triple-dip recession. With gross domestic
product more than 3 percent below its 2008 peak, NIESR said the
U.K. is in the slowest post-recession recovery in 100 years and
it doesn’t expect GDP to regain its previous peak until 2015.

“The concern should not be whether or not the economy
shrank slightly at the start of 2013 to fulfill the ‘technical’
definition of recession, or whether there is slight growth,”
NIESR said. It should be on “the broader question of whether
stagnation persists throughout 2013.”

The institute also forecast that net debt will peak at
about 85 percent of GDP in the 2016–2017 fiscal year. That
compares with the Office for Budget Responsibility’s projection
in December that debt will reach its highest point in 2015-2016
at about 80 percent and then start to decline.

‘Looser Policy’

After the economy stagnated in 2012, the institute said a
balanced recovery depends upon a resumption of consumer
spending, corporate investment and a pickup in exports.

“Such a recovery would best be supported by a significant
increase in public-sector net investment, with looser fiscal
policy in the short term while demand remains weak,” it said.
“At the same time, a new and credible fiscal framework should
underpin a continued commitment to fiscal consolidation over the
medium to long term.”

As the Bank of England’s Monetary Policy Committee begins
its two-day meeting tomorrow, NIESR economist Simon Kirby said
it will leave its bond-buying stimulus program on hold as “MPC
members have been highlighting concerns about the effectiveness
of asset purchases.”

All 43 economists in a Bloomberg News survey also forecast
that the MPC will leave the target for QE at 375 billion pounds
($590 billion). The central bank will announce the decision at
noon on Feb. 7.

Separately today, the British Retail Consortium said retail
sales rose 1.9 percent in January from a year earlier on a like-for-like basis. Total sales increased 3 percent. The BRC said
the figures may indicate that ``the mood is lifting a little for
customers and retailers'' after a subdued Christmas.